Ruffer has named gold and inflation-linked bonds as its pick to navigate the coronavirus sell-off as its investment trust portfolio rises 4.2% in March compared to double-digit falls in the FTSE All Share.
In the latest portfolio update, fund managers Hamish Baillie (pictured) and Duncan MacInnes described the £413.6m investment trust’s derivative protections as “critical” to its outperformance during the month. Baillie and MacInnes sold Vix calls, adding 3% to performance, and most of their equity put options, which added 1.7%. Credit protections added 5.8% to performance.
The share price did not keep pace with the net asset value of the trust rising 3.5%. But that compares to 15.1% losses in the FTSE All Share.
The discount/premium hit 12-month highs and lows during the month reaching a premium of 0.75% on 16 March before falling to a 10.43% discount on 25 March, according to Association of Investment Companies data. It finished March with a discount of 6.03%.
Ruffer turns to gold and linkers as central banks run out of steam
The duo said they favour gold and linkers to ride out coronavirus volatility, although they noted the former had been a detractor from performance in March as investors sold “what they could, not what they wanted to”.
Gold mining stocks and US Tips were added to the portfolio as volatility knocked prices over the period with the latter already adding 20% in US dollar terms.
“Central banks are throwing the kitchen sink at the crisis, but their omnipotence is another Covid-19 victim,” the fund managers said in their monthly update. They pointed to markets falling sharply on 16 March after the US Federal Reserve cut rates to zero and unleashed massive quantitative easing.
“Exhausted monetary policy is impotent in the face of the massive real economy shock facing us, and markets know it. Game-changing ‘helicopter money’ – central bank financing of fiscal stimulus for the real economy – has arrived,” they said.
“Our bet remains that deeper financial repression will result, with inflation-linked bonds and gold the key defences.”
Further bad news could be a boost to the portfolio
Willis Owen head of personal investing Adrian Lowcock described the Ruffer Investment Company as a good diversifier.
Lowcock said the outperformance from the portfolio made sense given the portfolio’s exposure to government bonds. At the end of March, it held 22.5% in non-UK index-linked bonds at the end of March, with a further 8.7% in long-dated index-linked gilts.
He added: “The index-linked bonds could well continue to perform in the longer term should we actually see inflation return, although that feels like something for when the crisis has passed.
“The fund is likely to do well if we are not past the worst of this bear market and whilst a lot of commentators point to the stimulus that has been put into the market I think there is still plenty of bad news to come so we could easily see a pull-back in equity markets which might give a boost to the fund.”
